Chancellor’s Spring Statement – March 2025

The ‘Spring Statement’ delivered today by the Chancellor of the Exchequer, Rachel Reeves, was not billed as a ‘mini-budget’, although many would be considering it a reflection of the state of the nation’s likely future finances.

In fact, today’s public calling to account will be the last of its kind as the Chancellor stated back in October 2024 that budget statements would return to being an annual Autumn event from 2025 with an update each June.

Context

The backdrop to today’s statement was presented from the standpoint of changes in the global order, both politically and in terms of trade. There has been a pretty swift dawning of realisation amongst European nations as a whole over recent weeks that some of the things we have taken for granted regarding global security and favourable trading terms may no longer be assumed or relied upon.

It’s all about growth

Most major economic indices have struggled since the new Government came to power, growth forecasts have been downgraded, inflation has risen, interest rates remain stubbornly high and debt interest spending is spiralling. However, this does not offer the full picture and the Office for Budget Responsibility (OBR) that scrutinises Government spending plans and fiscal management has offered a general observation of ‘it’s not all doom and gloom’, albeit with some very big provisos.

Rachel Reeves presented her first budget back in October as a once-in-a-lifetime set of measures that amounted to short-term pain for longer-term gain, getting the economy growing being the number one priority.

Today the OBR has halved the growth forecast for this year from 2% of GDP to 1%, however sees every reason to support a gradually improving picture over the next four years to achieve 1.9% annual growth by 2029.

‘Build baby, build’

The mainstay of this improving picture is the UK achieving, or coming very close to building the targeted 1.5 million new homes by 2030. The OBR has suggested that the achievable figure is 1.3 million, but that this investment activity will be sufficient to kick-start the required economic growth.

The Government has announced an additional £2 billion for building affordable homes and an additional £600 million for training the required construction workers.

Inflationary stand-off

Similarly, inflation currently stands at 2.8% after today’s small decrease, a figure well above the 2.00% target. The OBR delivered worse news with a forecasted average figure of 3.1% by the end of this year. However, sharp improvements in both inflation and interest rates are predicted to combine to bring inflation down to the 2% target by the end of 2026.

New rules, rule

There was a lot of discussion and explanation of how the economy will be managed to adhere to the newly applied fiscal rules introduced in October 2025. If everything goes according to plan, and despite the unexpected hikes to the nation’s defence budget, it appears that the sums can be made to add up, just. The Chancellor has ‘created’ forecasted headroom of £9.9billion in the fiscal calculations by 2029/30, which is positive but by no means comfortable.

Defence spending will increase by 2.5% of GDP by April 2027 and to 3% by the next parliament. This will be funded significantly by slashing the overseas aid budget.

Other major tranches of money will be clawed back through a clampdown on tax evasion with enhancements to the scope and speed of recovery through HMRC coming from investment in technology and training. The OBR agrees with estimates of an additional £7.5 billion in tax revenues being recovered each year.

Incentives to work, if you can?

Other savings will come through cuts. There have already been announcements regarding welfare reforms and the need to reduce the bill, particularly the health element of Universal Credit. Although there will be an increase in Universal Credit basic rates from £92 to £106 per week, the additional health needs top-up is being cut by 50% to existing claimants and will be frozen at the new level for future claimants. Meanwhile, by announcing a programme of retraining and employment support, including the right to try a job without losing benefits if it’s not a feasible option, the government hopes to bring a significant proportion of the non-working population into the workplace.

There was no reference to the decisions already announced, including the impending hike to employer’s national insurance contributions which is already impacting unemployment and business confidence.

Every penny counts…

All in all, the statement was nuanced and unnervingly balanced to almost the nearest pound in terms of expenditure and income. Overall, given the economic curve-balls of recent weeks, the news is probably slightly less gloomy than we all thought, but it’s going to be tight, very tight…